New research finds DEI isn't as good for profits as consultancies have claimed

When McKinsey declared in 2015 that it had found a link between executive racial and gender diversity and higher profits, it was a breakthrough that influenced investors, regulators, and companies to push for more diverse leadership. The research was used to justify investing in companies with diverse boards and to lobby for diversity mandates. However, new academic studies are calling into question the validity of McKinsey's findings, suggesting that the link between diversity and profitability is weaker than previously believed, the Wall Street Journal reports.

Attempts to replicate McKinsey's results using publicly available data have largely failed, with researchers concluding that there is no statistically significant correlation between executive diversity and various profitability metrics for S&P 500 companies. This lack of replicability raises doubts about the robustness of McKinsey's original study, which keeps the names of the companies it analyzed secret. Additionally, if the financial benefits of diversity were as substantial as McKinsey claimed, one would expect companies to have already capitalized on this advantage, but this has not been the case.

The disappointing performance of diversity-focused ETFs further underscores the gap between the promised benefits and reality. Investors who relied on McKinsey's research to guide their decisions have seen these funds significantly underperform their benchmarks. While McKinsey maintains that it has only ever claimed correlation and not causation, its influence on corporate policy and investor behavior suggests that its findings were often interpreted as evidence of a causal relationship.